Oppose Section 104, “The Home Mortgage Disclosure Act Adjustment”

The undersigned civil rights, fair housing, consumer, and community organizations write to highlight our strong concerns with Section 104 of S. 2155, “the Home Mortgage Disclosure Act Adjustment and Study”. This section would undermine efforts to ensure that the nation’s mortgage lenders are serving all segments of the market fairly by exempting the vast majority of lenders from the updated reporting required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Public officials use this information in distributing public-sector investments so as to attract private investment to areas where it is needed, and to identify possible discriminatory lending patterns.

In response to widespread concerns about predatory lending and opacity in the mortgage market in the run-up to and following the financial crisis[1], Congress amended the Home Mortgage Disclosure Act (HMDA) to require banks to disclose more information about their mortgage lending activities – updates finalized by the CFPB in 2015. Although not previously reported and disclosed through HMDA, these data points are already collected on a routine basis by banks, credit unions and for-profit mortgage companies in the normal course of business, either as a part of basic loan underwriting, for securitization or for other purposes required by law[2].

The CFPB Reduces the Reporting Burden on Small Lenders Without Sacrificing Data About Lending in Underserved Communities

After considering a number of higher reporting thresholds and receiving extensive feedback from all size and type of lending institutions, the CFPB adopted a standard that applies the new reporting requirements to institutions that made 25 closed-end mortgage loans or 100 open-end/home equity lines of credit (HELOCs). Importantly, in response to concerns raised by lenders and by some in Congress, the CFPB has already temporarily raised the reporting threshold for HELOCs to 500 through 2019, in order to further review the impact of the rule and what the permanent HELOC threshold should be. In adopting the HMDA thresholds, the agency balanced several Congressional interests – adopting a uniform and simplified reporting regime for banks; eliminating the need for low-volume banks to report while maintaining sufficient data for analysis at the national, local, and institutional levels.

Section 104 upsets the careful balance: its proposed reporting thresholds – 500 closed end loans or 500 open-end lines – would exempt the vast majority of the nation’s mortgage lenders from the updated requirements. Based on 2013 data, under the threshold set by the CFPB, 22 percent (1,400) of the depository institutions that currently report on their closed-end mortgages would be exempt. In contrast, if Section 104 is enacted, the agency estimates that 85 percent (5,400) of depositories would not have to update reporting on their mortgages. This higher threshold would sacrifice key data about lending in underserved communities that would help to ensure the flow of credit to qualified borrowers, stimulate the economy, and prevent future mortgage crises.[3]

Section 104 proposes to adopt a tiered reporting approach, exempting some lenders from reporting the new data points pursuant to the Dodd-Frank Act only. This is purportedly a way to reduce burden. However, because the data points covered by the rule are already collected by lenders, the burden associated with the rule is minimal. Further, as with any data collection effort, the primary driver of HMDA costs is in establishing and maintaining systems to collect and report data, and not the costs associated with collecting and reporting a particular data field.[4]Therefore, this approach sacrifices critical information without relieving much of the purported HMDA reporting burden on banks.

Section 104 Would Undermine Fair Access to Mortgage Credit

HMDA was passed in 1975 to provide the necessary tools to dismantle uneven access to mortgage credit and expand equal lending opportunities for qualified borrowers, yet important segments of the market continue to lack fair access. For people of color, low- to moderate-income families, and borrowers in rural areas, access to mortgage credit remains tight[5]. While the numbers of loan originations have gone down for all borrowers, African Americans and Latinos have experienced the steepest declines.[6] A Federal Reserve analysis of lending in rural areas has found higher denial rates in those communities since the housing crisis than in urban areas.[7] The new data would help explain and inform responses to these lending gaps. A new HMDA data point on the applicant’s age is also vital information for evaluating age bias in lending, especially in conjunction with reverse mortgages.

The stark disparities in access to mortgage credit and the continued struggle for economic recovery in the communities hit hardest by the financial crisis call for a strengthening of our nation’s fair lending laws, specifically HMDA, not a weakening of them. Quite simply, the updated HMDA data will provide critical information about whether similarly situated borrowers and underserved communities are receiving equitable access to mortgage credit, data that we lacked a decade ago when the crisis hit. This is not the time to limit the nation’s ability to adequately assess the reasons for restricted credit access for underserved borrowers. Instead, we must increase efforts to address the causes behind the increased difficulty in accessing safe, affordable credit.

For these reasons and more, we urge you to oppose Section 104 and any other efforts to roll back the data collection and reporting as called for in Dodd-Frank and implemented by the CFPB. Should you have any questions or comments, please feel free to contact Gerron Levi at the National Community Reinvestment Coalition at (202) 464-2708.

[2] See Adam Levitin, Credit Slips Blog, “New HMDA Regs Require Banks to Collect Lots of Data….That They Already Have”. The data points the CFPB is requiring as a part of the final rule are basic information needed for loan underwriting, and in addition many are required for closing documents, included on the Uniform Residential Loan Application, required for Desktop Underwriter (Fannie Mae), Loan Prospector (Freddie Mac), or in order to obtain FHA insurance.

[3] Based on 2013 data, the CFPB estimates that updated reporting would be lost for 10 percent of loan records under a 500 closed-end loan volume threshold, and over 5,300 census tracts would lose 20 percent of the updated data about mortgage lending in their communities. The National Community Reinvestment Coalition (NCRC) estimated the loss of post-crisis data about loan originations by state and found states with large rural areas face some of the largest losses of updated data about mortgage originations. Additional data would be lost about loan applications and why denials are occurring. This map tool estimates the local impact on loan originations data: http://maps.ncrc.org/s1310/index.html. Section 104 of S. 2155 would mean that communities would also know less about loan applications and denials.

[6] Urban Institute has published a number of studies on homeownership. For example, see: Are gains in black homeownership history? (February 14, 2017); Increasing access to mortgages for minorities (December 1, 2016);